Australian Economy - Two Speed

Fundamentals point to a two-speed Australian economy. The latest data suggests that the domestic economy is feeling the heat from Europe, in spite of the mining boom.

For people planning to emigrate to Australia, this indicates a new reality too. It suggests a strong Australian dollar.

Want to know how to get the rate you expect? Ask our currency exchange specialist Peter Lavelle. Simply fill in the form below. He'll be delighted to help with your foreign exchange requirements.

Peter Lavelle at Pure FX - 3.02.2012.

Exchange Rate Changes

This is a table of the difference in currency you could have achieved in the past month, trading at the high compared to the low:
GBPAUD: 2.40%
EURAUD: 3.60%
USDAUD: 4.65%

Following months in which the Australian dollar has marched higher and higher almost uninterrupted past its rivals, it seems a little strange to report that this week the rates have been stable.

Yet oddly enough they have.

The GDPAUD exchange rate for instance remained close to 1.48 throughout the past seven days.

What then has been the cause for this sudden halt in the ascendance of the Australian dollar?

In large part, it seems to be coming down to the developing picture of a two-speed Australian economy. Though demand for Australian commodities such as iron and coal from China remains strong, fuelling growth in Australian mining, the domestic economy is feeling increasingly nervous about the debt crisis in Europe.

For instance, on the positive side Australia posted a record trade surplus last month, exporting goods worth a net $1.71bn AUD. This compares to forecasts for a surplus of just $1.23bn, and is a 2011 high. It lends credence to prime minister Julia Gillard promise to bring Australia into surplus in 2012, and reflects Chinese demand.

On the other hand though, building permits declined -24.5% in December compared to 12 months previous.

In addition new home sales declined -4.9% last month, compared to +4.4% growth in November.

So what's going on?

It's all down to Europe. Given that businesses and consumers don't know whether the euro is going to be there in 3 months time, they're holding off spending and investing.

Businesses are not hiring.

People are postponing beginning a mortgage.

This then culminates in a poor domestic outlook.

To combat this, Reserve Bank of Australia governor Glenn Stevens looks set to cut cash rates for the third consecutive month on Feb 7th. This will bring rates to just 4.0%, and should ease the pressure on the Australian economy.

In addition, the outlook for Australia remains bright.

In a speech this week, Prime Minister Julia Gillard remarked that Australia has an opportunity to build a new economy just now, reflecting its improved position in the global pecking order post-2008. This is creating uncertainty at present, but should ultimately amount to greater prosperity.

Of course, for people planning to emigrate to Australia, this indicates a new reality also. It suggests the present strength of the Australian dollar is not likely to diminish any time soon.

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